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Dell VMware Spin-Off: What Happens Now?

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Eventually, we got there. Dell Technologies and VMware have reached an agreement for the spin-off. The decision has been in the air for some time: the “ what-to-do-with-VMware ” chant has never stopped running in the environment. Dell Technologies had not yet absorbed the largest acquisition in the history of technology – EMC, with VMware, in 2016 for 67 billion dollars, 58 at the final deed -, the budget was beginning to suffer and in September 2021 the five years of tax benefits expire enjoyed by the Austin company.

As in the historical case of eBay and PayPal, the acquired VMware in 2020 had reached a valuation of almost 64 billion dollars, Dell Technologies had to settle for just under 40 billion dollars. And, considering, for example, the quarter ended May 1, 2020, Dell was generating $ 22 billion against just $ 143 million in net income after expenses. In contrast, VMware was generating $ 2.7 billion at the time with a net income of $ 386 million. And finally, the growth was also disproportionate.

Dell Makes Cash And VMware Gains More Freedom

So, after 2020, the decision. Dell Technologies makes its 81% share of VMware shares available to the market, and at the end of 2021, the two companies will effectively be separated. As a result of the agreements, VMware will pay its shareholders a total dividend of approximately $ 12 billion and Dell Technologies itself will receive approximately $ 9.5 billion, to be used to amortize the exposure.

Vmware’s interim CEO Zane Rowe, CFO who took over from Pat Gelsinger who returned to Intel as CEO, said the strategic partnership will remain solid. Michael Dell confirms: “We will continue to be important partners, with a differentiated advantage in the way we bring solutions to customers, ” said the CEO and founder of Dell Technologies who remains chairman of the VMware Board of Directors.

Dell / VMware: A “Harmless” Spin-Off?

In short, the statements to investors show that, in the end, little will change, indeed, we are probably facing consolidation of the two realities. The two companies have a five-year commercial agreement that can be reviewed annually. Dell Technologies will continue to offer VMware solutions to its customers and, conversely, VMware will still rely on the services of Dell Financial Service.

A spin-off that, on the one hand, enriches the needy coffers of Dell Technologies that try to get back it is rating, while on the other it allows VMware to become more independent and free to focus on the Gelsinger post. According to Rowe VMware wants to “simplify the capital structure and the governance model” and obtain further strategic, operational, and financial flexibility ”.

In addition, the virtualization leader continues to build a single management software layer across the cloud. In short, it integrates, unifies, and adapts its offer to market trends and defends a leadership position that competitors have been trying for a while to erode, even with a certain not exactly orthodox dialectic.

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